Japan to keep its share of production of Boeing's new 777X aircraft

Tim Kelly

4 Min Read

TOKYO (Reuters) - Boeing Co (BA.N) has lined up Japanese companies, including Mitsubishi Heavy Industries (7011.T) and Kawasaki Heavy Industries (7012.T), to build one-fifth of its latest plane, the 777X, retaining Japan as its key Asian partner in commercial jetliners, two sources with knowledge of the plans said.

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

This would give the Japanese companies a share of the work on the new plane that is on par with the 21 percent of the 777 aircraft they have been making for two decades.

But because Boeing plans eventually to build more planes per month, there should be a greater volume of work for the Japanese suppliers, one of the sources said. Boeing’s current production rate for the 777 is 8.3 a month.

A Boeing spokesman in Tokyo declined to confirm the information.

“Supply chain partnerships and production system decisions will be addressed at the appropriate time,” the spokesman said.

Boeing, and to a lesser extent Airbus (AIR.PA), its European rival, assemble jetliners from parts made across the world. The arrival of new models or major variants of earlier ones - like the 350-406-seat 777X - gives suppliers a chance to compete.

For Mitsubishi Heavy, Kawasaki Heavy, Fuji Heavy Industries (7270.T) and other Japanese suppliers, the high watermark for Boeing work so far is the 787 Dreamliner, with 35 percent of the carbon composite jet, including wings, built in Japanese plants.

Delays in the 787 development and delivery, due in part to difficulties of managing a global supply chain, prompted Boeing to keep more of the 777X, including the wings, at home.

The prospect of higher output of the 777X, which competes mainly with Airbus’s A350 and is a key source of cash and profits for the U.S. planemaker, first emerged when Boeing was wrestling with major production decisions last year. The company has not addressed in public how fast it would produce the jets.

Mitsubishi Heavy, according to sources who spoke to Reuters last year, made a bid to win the wing business when workers in the United States at first rejected a labor deal that would have secured the build in Washington State.

That proposal called for producing wings at a rate starting at 7 a month and rising to 10 a month, in what was seen as an indication of Boeing’s own thinking on potential output since Mitsubishi was bidding as a core member of its production team.

BOEING’S IMPORTANCE

Japan’s government sees the Boeing partnership as critical to rebuilding an aerospace industry that the U.S. dismantled after World War II.

Beginning with panels for the 747 jumbo, Japanese firms secured their ties to Boeing in the 1980s with a 16 percent share of the 767. That deepened further with their involvement in the 777 a decade later.

Boeing reckons that the business it gives Japan employs 22,000 engineers, accounting for around 40 percent of the country’s aerospace workforce.

For Boeing, building in Japan helped to secure sales in what was once Asia’s biggest aviation market, where it still dominates with an 80 percent share.

But a decision by Japan Airlines Co Ltd (9201.T) last year to order 31 A350 aircraft from Europe’s Airbus (AIR.PA) instead of the 777X prompted angst in Tokyo that Boeing would look for suppliers elsewhere, particularly in China which is now the biggest market in the region for passenger aircraft.

JAL’s rival ANA Holdings Inc (9202.T) helped to alleviate those worries last month when, as part of a 70 plane order, it bought a score of 777X jets as well as six 777s and 14 of the 787s.